COVID-19: IRS announces relief for nonresident individuals affected by COVID-19 travel Restrictions
On April 21, 2020, IRS issued Rev. Proc. 2020-20 setting forth relief for non-resident individuals who may have an inadvertent US income tax filing requirement (form 1040-NR) under the “substantial present test” as a result of remaining in the United States longer than anticipated due to travel disruptions caused by the COVID-19 outbreak. This relief is known as the “COVID-19 Medical Condition Travel Exception”.
Substantial Presence Test
US law considers an individual to be a US tax resident under the substantial present test if he/she is present in the United States for 31 days in the current tax year and more than 183 days using the following weighted average formula:
Number of days in current year + 1/3 of the number of days in the preceding year +1/6 of the number of days in the second preceding year
A medical condition exception allows a person to exclude days he or she was unable to depart the US if that condition that arose while in the United States. This exception also applies under US tax treaties.
COVID-19 Emergency Period
Rev. Proc 2020-20 supplements the medical condition exception. It allows eligible individuals to exclude 60 consecutive days present in the US on or after February 1, 2020 through April 1, 2020 from the substantial presence test and treaty calculations if COVID-19 measures prevented an earlier departure. This is known as the “COVID-19 Emergency Period”.
Eligible individuals include one who:
- was not a US resident at the close of the 2019 tax year,
- is not a lawful permanent resident at any point in 2020,
- was present in the US (without regard to Rev. Proc. 2020-20) on each of the days of the individual’s COVID-19 Emergency Period, and
- does not become a US resident in 2020 due to days of presence in the US outside of the individual’s COVID-19 Emergency Period.
Claiming the COVID-19 Medical Condition Travel Exception
To claim the COVID-19 Medical Condition Travel Exception, eligible individuals who will otherwise file a 2020 Form 1040-NR will attach Form 8843 “Statement for Exempt Individuals and Individuals with a Medical Condition” by the due date (including extensions) of the return in accordance with Rev. Proc. 2020-20’s instructions. Eligible individuals who will not have to file 2020 Form 1040NR are not required to file Form 8843 at all.
Individuals claim treaty exemptions from withholding on income from dependent personal services performed in the US by providing an employer or withholding agent with Form 8233. If a withholding agent already exempts income due to a previously submitted Form 8233, a new Form 8233 is not required. Other eligible individuals need to file a new Form 8233 to claim the COVID-19 Medical Condition Travel Exception. If a new Form 8233 is not provided or if a withholding agent already withheld income tax otherwise exempt pursuant to Rev. Proc. 2020-20, the eligible individual should file a 2020 Form 1040-NR with a statement in accordance with Rev. Proc. 2020-20’s instructions.
Fuller Landau thanks Jeffrey Brown and Simone Belnavis for sharing this information with our clients and friends.